Tuesday, November 8, 2016

Teaching Corporate Fiduciary Duty Law; Teaching Complexity

Each year, I rethink how I teach fiduciary duties in the corporate law context in my Business Associations course.  My learning objectives for the students are both limited and involved.  On the one hand, there's little room in my three-credit-hour course for a nuanced understanding of all of the contexts in which corporate fiduciary duty claims typically occur.  In particular, I have determined to leave out the public company mergers and acquisitions context almost completely.  On the other hand, I find myself juggling uncertain classifications of duty components, explanations of seemingly mismatched standards of conduct and liability, and judicial review standards in and outside the Delaware corporate law context.  It's a handful.  It's teaching complexity.

Of course, fiduciary duty is not the only complex matter that one must teach in Business Associations.  But it is, for me, one of the topics I am least confident that I "get right" in my interactions with students in and outside the classroom.  Accordingly, as I again head toward the end of the semester, I find myself wondering whether I could have done--or could do--more with the students in my Business Associations course this semester.  This leads me to ask my fellow business law professors (that's you!) whether any of you have materials, teaching techniques, exercises (in-class or out-of-class), etc. that you find to be particularly effective in educating law students the basics and nuances of corporate fiduciary duties.  

So, have at it!  Share your corporate fiduciary duty teaching successes in the comments, if you would.  I am all ears.  I know that what you report will benefit me and others (including our students), and I hope that your comments will generate a continuing conversation . . . .



Business Associations, Corporate Governance, Corporations, Joan Heminway | Permalink


When it comes to fiduciary duties, I try to focus on closely-held entities. Usually, the facts are so straight forward that the students can relate them to their own limited experiences.

Posted by: Tom N. | Nov 9, 2016 6:22:57 AM

Thanks, Tom N. I also do a unit on closely held firms. But because the law in that area involves judicially imposed shareholder fiduciary duties of a special kind, I save those cases for after I engage the components (standards of conduct and liability) of the general duties of care and loyalty and (or, in Delaware, including) good faith and describe both (1) what each includes/may include and (2) the judicial standards of review for the different types of claims (at least to some extent, as I indicate in the post).

Some of those cases on the general duties do involve closely held firms, but some involve publicly held firms (since, e.g., the duty of care in Delaware is framed, for better or for worse, by Smith v. Van Gorkom--which involves a publicly held firm--and Stone v. Ritter, which [re]classifies the duty of god faith as a loyalty question, also involves a publicly traded firm). It sounds like you do something quite different. So, if you're willing to share, I would be interested in knowing what cases you use to teach care and loyalty and good faith through the closely held firm lens.

Posted by: joanheminway | Nov 9, 2016 6:50:01 AM

Since relatively few of my 2Ls will have substantial decision-making roles early in their careers that involve the more intricate aspects of fiduciary duties and the various litigation standards, I keep it simple. For duty of loyalty, there are two broad ways to get in trouble: (1) self-dealing, and (2) usurping an opportunity. There are three broad ways to cover yourself: (1) approval in advance, (2) approval after the fact by a disinterested board, or (3) approval after the fact by disinterested shareholders. (Yes, those are gross simplifications but they probably cover 99 percent of real-world problems.) From a transactional perspective, which I use, the keys are to (1) realize that you have a potential problem, and then (2) disclose and get it approved. As far as the duty of care, I focus on the keys: (1) get informed, (2) think about it, and (3) make an actual decision, and (4) get a provision in the articles that immunize you from DOC claims and buy good D&O and malpractice liability policies.

Things are much more complicated for those who are going to be litigating the cases after the fact -- I used to teach all sorts of stuff about different standards in NY and DE, special litigation committees, etc. -- but I cut the complexity. Getting the basic duties down is enough for me.

Posted by: Frank Snyder | Nov 9, 2016 8:32:19 AM

Not a professor, but a practitioner, I immediately thought that in addition to cases, students could learn much from looking at, in order: (i) a state corporate statutory provision on point; (ii) a corporation's Articles and By-Laws on point; and (iii) a director/officer Indemnification Agreement that reflects the statutory and organic document provisions. Let me know if you would like a set for a Kentucky corporation.

Posted by: Craig Sparks | Nov 9, 2016 8:36:24 AM

Thanks, Frank and Craig. Great stuff here. I appreciate you two weighing in.

Frank, I hear you. I worry about my students (a small number, but numbers generally are small here at Tennessee) who are going to practice at regional or local firms where they need to know the nuances around, e.g., the location of good faith in the Delaware jurisprudence. But I may be over-weighting that concern. I will invite comment on that, too.

Craig, we do look at the MBCA (Subchapter F) and DGCL Section 144. But, of course, there's not much statutory law out there. And we talk about charter exculpation and charter/bylaw/contract indemnification provisions (and have already covered charters and bylaws generally), as well as D&O insurance.

Posted by: joanheminway | Nov 9, 2016 10:12:10 AM

Hi, Joan. If you figure out exactly where "good faith" is in the Delaware jurisprudence, please explain it. Every year I tell students it seems to be there but I have no idea what it means. Fortunately, here in Texas we generally only have the duty of care and the duty of loyalty to worry about.

Posted by: Frank Snyder | Nov 9, 2016 1:49:42 PM

Indeed, Frank! I know your pain. We spend a lot of time parsing those words in Stone v. Ritter. It's a bit opaque . . . . But I did have Justice Holland in my classroom many years ago, and he confirmed the conclusions reached by the Delaware Supreme Court in that case. So, in my course, we situate good faith within the duty of loyalty in Delaware, as the decision directs. It is, however, unclear whether other jurisdictions (those that have not yet adopted the Stone v. Ritter way of addressing claims that board actions were not taken in good faith--or that the board failed in overseeing management) would in fact do so if asked. We acknowledge as a result that Delaware law may have its own way of labeling and addressing bad faith claims and that a "triad" of fiduciary duties may [still] exist under other states' laws. This, of course, is part of the complexity . . . .

Posted by: joanheminway | Nov 9, 2016 3:28:54 PM

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